The S&P 500 closed out 2024 with a total return of 23.3%, building on its 24.2% gain in 2023. Despite a weaker finish to the year, the index notched 57 record closes, fueled by optimism around artificial intelligence (AI) and the Federal Reserve’s interest rate cuts. Every sector in the index posted gains for the year, but seven of the eleven sectors underperformed the broader benchmark, while five delivered returns of at least 20%.
Artificial intelligence stocks were at the forefront of the market’s surge. Nvidia’s impressive 171% gain and Broadcom’s 108% rise exemplified the sector’s transformative potential, propelling both companies to new heights.
Meanwhile, consumer discretionary stocks outperformed in the fourth quarter, delivering double-digit returns, while the health care and materials sectors faced double-digit losses in the same period.
Energy Sector: Moderate Gains with Significant Variance
The energy sector delivered a modest total return of 5.6% in 2024, reflecting a year of moderate energy prices and uneven performance across its subsectors. While upstream producers and refiners struggled, the midstream segment delivered standout results, driven by strong fundamentals and dividend growth.
Note that all returns discussed below are total returns, which include the impact of dividend payments.
According to data provider FactSet, midstream companies led the energy sector with an average total return of 20.8%. Targa Resources Corp. was the top performer, delivering a remarkable 110.1% return. These results highlight the segment’s stability and income-generating appeal amid a year of restrained energy prices.
In contrast, upstream companies—pure oil and gas producers—recorded an average gain of only 1.5%. Of the 47 companies classified as “upstream” by FactSet, just over half managed positive returns. PrimeEnergy Resources led the group with a 106.5% return, followed closely by Comstock Resources at 105.9%. However, many upstream operators struggled to overcome the challenges of fluctuating commodity prices and investor sentiment.
The refining segment endured a tough year, with the “Big Three” refiners—Marathon Petroleum, Valero, and Phillips 66—posting an average decline of 6.2%. Valero led with a relatively modest decline of -3.0%, followed by Marathon (-4.1%) and Phillips 66 (-11.6%). The refining industry faced headwinds from narrowing crack spreads and subdued demand growth.
Integrated supermajors fared slightly better but still ended the year down an average of 3.1%. ExxonMobil was the standout performer, gaining 11.3% for the year, while Chevron also eked out a 1.3% gain. These companies benefited from diversified operations but were unable to fully escape the drag of weaker refining margins and flat oil prices.
Looking Ahead to 2025
The outlook for 2025 presents both opportunities and challenges for the energy sector. A more favorable regulatory environment under the incoming Trump Administration is expected to benefit oil and gas operators, but industry profits will ultimately hinge on commodity prices.
OPEC+ continues to maintain production cuts, but record U.S. oil output has dampened upward pressure on oil prices, which weighed on profits in 2024. This dynamic is likely to persist in 2025, keeping a lid on significant price increases and resulting in modest profitability for the sector.
While the energy sector may see limited upside in the near term, segments like midstream, with their stable cash flows and attractive yields, remain well-positioned to deliver value to investors. For upstream and refining companies, a focus on cost efficiency and operational resilience will be critical in navigating the challenges of 2025.
In short, the energy sector’s status quo of moderate prices and selective outperformance by subsectors is expected to carry into 2025, offering measured opportunities for investors willing to navigate its complexities.
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